The S&P 500 index has achieved its 54th high this year, reflecting strong confidence in American markets despite political challenges. Ruchir Sharma’s article in the Financial Times highlights the overvaluation of U.S. stocks and the dollar, as global investors increasingly favor the U.S. Meanwhile, European markets exhibit mixed performance amid political instability, with luxury stocks gaining slightly. Speculation about a potential Federal Reserve rate cut is rising, while Asian markets are experiencing positive momentum, particularly in China.
Market Update: The S&P 500 Soars to New Heights
In a significant achievement, the S&P 500 index has surpassed its 54th high this year, showcasing the resilience of the American stock market. This remarkable trend is discussed in a compelling article by Ruchir Sharma in the Financial Times, titled ‘The Mother of All Bubbles.’ The piece is a must-read for anyone interested in the current financial landscape, as Sharma articulates how global investors are placing unprecedented faith in American markets, despite the perception of political dysfunction in the country. This trust has led to a notable overvaluation of stocks and the dollar, with the U.S. now representing nearly 70% of the MSCI World index, a sharp increase from just 30% in the 1980s. Sharma poignantly notes, “while most observers think the world is becoming increasingly multipolar, investors believe it is becoming increasingly unipolar… America is overheld, overvalued, and overestimated to a degree never seen before.” If you have the opportunity, I highly recommend diving into this insightful article.
European Markets: A Mixed Bag Amid Political Uncertainty
As Wall Street accelerates like a Ford Mustang, European markets are progressing at a slower pace, akin to a Kangoo. However, the Paris Stock Exchange seems to be struggling, resembling a broken-down 4L amidst political unrest. Despite this, luxury stocks made a modest recovery yesterday, buoyed by a favorable analyst recommendation for Hermès and a decline in the euro, which benefits companies that predominantly sell in dollars. LVMH and Airbus were among those who saw gains. Yet, the overall atmosphere in Paris remains cautious due to the looming threat of a government collapse following a motion of censure against Barnier’s administration. The situation is fluid, with last-minute negotiations needed before the crucial vote on Thursday. Interestingly, the number of Article 49.3 appeals by previous governments has totaled 25, and sources suggest that the current administration may not resort to this tactic again. Meanwhile, Donald Trump is set to make headlines as he attends the reopening of Notre-Dame Cathedral this Saturday, marking his first overseas trip since his election.
Turning our attention to monetary policy, there’s increasing speculation about a potential Federal Reserve rate cut in December, with the likelihood rising from 52.3% to 75.4% recently. Fed Governor Christopher Waller has voiced support for monetary easing, adding weight to these expectations ahead of Jerome Powell’s upcoming speech. This anticipation has led to a slight dip in the dollar, which had gained strength earlier due to the political turmoil in France.
In Asia-Pacific, markets are mirroring the positive momentum from the U.S. stock market, particularly in China, where indices are rebounding following the latest U.S. restrictions on the microelectronics sector. The Hang Seng and CSI300 indices, initially down, have rebounded, buoyed by hopes of milder measures than anticipated. Additionally, news of a significant economic conference organized by the Chinese Communist Party on December 11 and 12 has further stimulated market enthusiasm. Tokyo’s tech stocks are also contributing to a 1.7% gain, while other major Asian markets are reflecting similar upward trends.
As for European markets, the CAC40 opened up 0.3% at 7259 points, the SMI rose by 0.06% to 11,838 points, and the Bel20 climbed 0.4% to 4260 points.
Today’s Economic Highlights
In the U.S., the JOLTS survey on monthly job openings is set to be released at 4:00 PM. Here’s a snapshot of the current financial landscape:
- Euro: 1.0486 USD
- Gold ounce: 2640 USD
- Brent: 71.97 USD
- 10-year US Treasury: 4.20%
- Bitcoin: 96,000 USD
Main Changes in Recommendations
- ArgenX: JP Morgan upholds its overweight recommendation with a price target raised from 620 to 740 EUR.
- Azimut Holding: Deutsche Bank downgrades its buy recommendation to hold, lowering the price target from 30.60 EUR to 27.80 EUR.
- Basf: Baader Helvea upgrades from accumulate to buy, with a price target raised from 50 to 55 EUR.
- Beijer: Citi initiates coverage at neutral with a price target of 174 SEK.
- Burberry: BNP Paribas Exane maintains its neutral recommendation and raises the price target from 620 GBX to 900 GBX.
- Compagnie Financière Richemont: Citigroup keeps its buy rating but reduces the price target from 158 CHF to 145 CHF.
- Covivio: JP Morgan retains its overweight recommendation but lowers the price target from 64 to 62 EUR; Morgan Stanley downgrades from market weight to underweight with a target reduced from 60 EUR to 55 EUR.
- Credito Emiliano: Jefferies downgrades from buy to hold, with a price target reduced from 11.90 to 11.50 EUR.
- Currys: Deutsche Bank downgrades its buy recommendation to hold with a price target reduced from 95 GBX to 85 GBX.
- Euroapi: [Further details awaited]